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A coalition of major banking and credit union trade groups is calling on the Federal Reserve to withdraw its 2023 proposal to further reduce debit card interchange fees, arguing the rule is based on outdated data and now sits in the middle of conflicting federal court decisions.
In a joint letter sent Dec. 8 to Federal Reserve Secretary Ann Misback, nine organizations, including America’s Credit Unions, the Defense Credit Union Council, the American Bankers Association, the Bank Policy Institute and the Independent Community Bankers of America said the Fed should scrap the proposal until ongoing litigation over Regulation II is resolved.
Two federal district courts have issued inconsistent rulings on Regulation II, creating uncertainty about the legality of the underlying framework. The groups argued the Fed should not move forward with a final rule until courts provide clarity, a process that could take years.
They also contended the Fed relied on transaction data from 2021, which no longer reflects the modern payments environment. Since then, debit card usage has shifted significantly, including spikes in contactless payments, mobile wallet adoption and a rise in card-not-present fraud, all of which affect issuer costs.
The associations warned that lowering interchange caps would further strain financial institutions, potentially driving up costs for consumers and undermining debit card programs, including those offered by smaller credit unions that rely on fee income to subsidize low-cost accounts.
Withdrawing the proposal, they said, would reduce market uncertainty and give regulators time to review updated data and the outcome of pending litigation before considering any future changes to Regulation II.
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